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Acquihiring - Recruitment Strategy for Purple Squirrels

By Sushma Saxena, 3rd Eye Advisory Ltd
Acquihiring - Recruitment Strategy for Purple Squirrels

The war for technical talent is so intense that a handful of firms like Google, Face book, Cisco, Apple, Twitter and Zynga have shifted to a powerful but rare recruiting sub-strategy known as acqui-hiring. It involves established firms acquiring start-up firms not for their products (only Facebook admits it) but instead primarily to capture an entire team of talented engineers and designers at once. If in the past after reading about an announcement of an acquisition you've wondered to yourself why a technical giant was bothering to buy a start-up with no profit, a seemingly unrelated product and a product that was in a completely different field, now you know why. Acqui-hiring (acquisition hiring) is in direct contrast to most traditional corporate hiring, which simply doesn't work when you are recruiting innovators that prefer start-ups over what they consider to be onerous "corporate jobs."

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Chart 1: Facebook's rate of acqui-hiring over the past two years

While the tech sector is leading the way, many other industries are becoming ripe for acqui-hiring themselves. Digitization, globalization, and access to venture capital has enabled entrepreneurs to start new companies in many different industries. Even traditional sectors - such as oil and gas, retail, manufacturing, and pharmaceuticals - have seen a sudden increase in the number of start-ups.

The benefits of an acqui-hire strategy

The strategy originated when large tech firms were restricted from hiring each other's talent because of "non-poach" agreements. However, even though those agreements are dead, the strategy has even expanded because firms have since come to realize the quality of the innovative talent that work at start-ups. The Holy Grail of recruiting these days is successfully recruiting innovators, game changers or what some call "Purple Squirrels". They are so valuable because they "think outside the box" 24/7 and they are the kind of people that come up with innovations like mobile phone apps, social media applications and game changing products. The problem with these individuals is that they prefer the freedom of a startup environment and as a result, many would never even consider applying to a large corporation. The acqui-hire strategy (sometimes spelled acqhire) allows large corporations to get this talent by simply buying their firm and as a result they get every one of their teams. Be aware that the strategy is not for the risk adverse recruiting leader but if you are strategic, you should realize that it does have numerous advantages. They include:

  • You get an intact team-
    Traditional hiring only individuals which take a long time to integrate into your existing corporate team. However, with acqui-hiring, you recruit the entire team at the same time. Obviously the team already has the capability of working together, so there is no need to develop team collaboration and cooperation. If you can successfully keep them operating as an intact team, they will continue to innovate and produce for years.
  • You get innovators-
    Start-ups are known for their ability to acquire innovators and outside the box thinkers. Through acqui-hiring, you not only get the current innovations and ideas of these individuals but you also get their ability to continually generate new ones.
  • You get the CEO-
    When you buy the firm, you also get their entrepreneurial leader (it usually written into the deal). Not only do you get the leaders entrepreneurial ideas but you also get their ability to successfully lead the acquired team through brand-new innovations. The leaders in return often get the opportunity to use the brand and the resources of the purchasing firm as a platform to more broadly spread their ideas.
  • The acquired employees have a proven track record-
    If the acqui-hire target is successful with a viable product, you are getting already trained and top performing employees. And because they have been working at a startup, they have already proven that they are more than willing to work long hours with minimal resources.
  • No other recruiting strategy will work-
    Even though firms like Google have a great employer brand, they are still viewed by start-up and entrepreneurially focused individuals as large corporate entities. Because of that negative view, individuals that would choose a start-up will likely never even consider applying at a large corporation. And even if they do apply, up to 90% will be rejected because they are found not to be a "corporate fit" somewhere during the recruiting process.
  • They will initially accept their fate-
    This is because they are being acquired as a unit and because they have been through so much turmoil together, their camaraderie and cohesion will work together to convince almost everyone to make the move. They will at least initially assume that as a team, they will be able to look out for and protect each other from the feared corporate intrusions. If their leader is properly prepped, they will be able to convince the team that as part of the plan, they will at least initially be isolated or protected from corporate influences.
  • With the right retention strategy, they will stay-
    This are obviously the same factors that prevented the startup's employees from applying for corporate jobs could also cause these newly acquired employees to eventually quit. Well-designed compensation packages and stock option packages will keep them for a while. In many cases however, once the acquired employees learn the advantages of now having a great brand, better pay and benefits and ample resources, the majority of the team will see the benefits of staying for a long time.
  • Eventually many will acclimate-
    This is just like anyone that moves into a new environment, over time most will eventually acclimate and even lose their dislike for the corporate world. Some may become comfortable enough with the organization that they are willing to move away from their initial team and into the mainstream of the corporation.
  • Being acquired is an acceptable goal of start-ups-
    This isbecause every employee knows that one of the possible outcomes of any start-up is to be acquired by a larger firm, there will be less initial resistance when the acquisition is announced. Individuals can now save face among their start-up friends because they now have a credible argument to share along the lines of "no we didn't fail, we succeeded because we became so successful that we were bought out".

HR experts from any industry should at least consider whether acqui-hiring is a worthwhile strategy to pursue. Done right, it will expand the number of skilled employees working for the firm and who are more assured of working well together than individuals without prior experience of one another. HR teams should take three steps.

  1. Identify emerging skills in your industry:
    All industries now require employees with a range of new and increasingly specialized skills, especially knowledge workers. HR teams should make sure they have a clear understanding of the strategic priorities their business unit or firm is working towards, and then work back from there to create prototype job descriptions for the types of role they might need.
  2. Watch for fast-growing start-ups:
    Successful start-ups have no shortage of ideas or intelligent people but can lack cash and struggle to find funding. So many will see acqui-hiring as an attractive exit strategy. HR teams should track venture capital investments in their sector(s) as a way to see where new skills - and the demand for them - are emerging.
  3. Use data wisely:
    HR teams must go beyond simply collecting demographic information about future roles and potential employees to fill them, and use measures of performance that will identify the right people to help implement whatever strategy the senior team are shaping.

It's unusual to hear M&A strategy discussed in the same conversation with corporate recruiting but a handful of firms have learned the advantages of combining the two strategies. A few firms have tried "lift outs", where they recruit a single intact team but this acqui-hire strategy brings in multiple teams. It's important to note although companies like Face book report phenomenal successes, others like Apple have had problems (they reportedly used the strategy to acquire their mapmaking talent). If you have been striving to be more strategic and bold in your recruiting, you should seriously consider this option.

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Article by: Sushma Saxena, 3rd Eye Advisory Ltd